Ideal taxation: At least assure investors of tax stability as a principle

livemint.com:

Last checked, US-based Tesla had not taken the bait of India’s policy package unveiled in March to attract global makers of electric vehicles (EVs), though Vietnam’s VinFast may qualify for its benefits—which include low-tariff imports of EVs worth under $35,000 apiece for five years—and Germany’s famous Mercedes-Benz has it under consideration. As reported, Mercedes India’s CEO Santosh Iyer has said the car-maker is ready to invest $500 million, the qualifying minimum, if it could be certain that today’s 5% GST rate for EVs stays in place for at least a decade. In itself, this is not an unreasonable ask.

But is it likely? Since GST is in need of a slab overhaul, apart from the fact that the GST Council can and does tweak its details, an exact rate prevailing for 10 years cannot be assured. But to the extent that a ‘merit’ slab has bipartisan favour, an especially light levy on EVs could be taken for granted. It’s a fair bet that this policy is subject more to climate than political change, so a single-digit GST should hold.

What may prove less steady is how hybrid cars are taxed. As we could speed up our drive for cleaner transport by lessening their current GST overload, EV makers can’t rule out stiffer price rivalry brought about by hybrids getting re-slotted as ‘merit’ products. All this spells what’s often called ‘tax uncertainty.’ Neither precise nor relative GST rates can be forecast.

Yet, it’s not just global investors who seek tax stability. Everyone does. What India can—and ought to—promise everyone is that Indian tax policy will aim to satisfy what the world’s early economists called “canons of taxation." Under the basic tax principles laid down by Adam Smith (1723-1790), among others, for a tax system to be